S&P 500 ROI After Yield Curve Inversion

Hey everyone and thanks for jumping back Into the equity verse today we're going To take a look at the S P 500 return on Investment after yield curve inversion If you guys like the content make sure You subscribe to the channel give the Video a thumbs up and also check out the Sale on into the crypto virus premium uh Into the cryptiverse.com let's go ahead And jump in now we have spoken somewhat Frequently about the yield curve and how It is useful in understanding macro Economic conditions and right now you Will see again that the yield curve does In fact remain inverted and it has been Inverted for quite some time we can Scroll back the clock here and see that It really started to become at least Parts of it became started to become Inverted as as early as late 2022 and of Course it's been inverted more or less Ever since If you were to get it go back in time And find other examples where we had Yield curve inversion there was a period Before the 2007 recession uh or the 2008 2009 recession where we had yield curve Inversion uh there was a period before The.com recession that we had yield Curve inversion and then also going back To to the 1990s Um we don't actually have it on here but This was the recession and then of Course just before it we had an inverted

Yield curve so one of the things that I Think it's important to remind ourselves Of is that unlike you know things like Cryptocurrency the macro stuff can take A very long time to play out I mean Sometimes it can take years for it to Ultimately play out Again if you were to go back to 2007 we Had an inverted yield curve and the Market didn't really start to get You know pretty nasty until a year or Two later you know your year and a half Later so again this stuff can take quite A long period of time now to visualize Yield curve inversions you of course can Also pick out two specific time frames And compare them for instance when when The economy is is healthy you would Argue that you know Lower duration treasuries would yield Less than than longer duration Treasuries but when you're when the Economy is is kind of sick you'll often See things like where the three month is Is providing a better Um yield at least annualize and then say Something like the tenure So what we're going to look at are Treasury yield spreads okay so this is The spread of the 10-year and the three Months and again as you can see normally During the inversion process we are not In a recession right that's not Typically what we see during the

Inversion it's not to say that it can't Ever happen like you can see from the 1980s but oftentimes especially when you Go into an inversion you're not in a Recession in fact if someone just told You in the future some random date in The future that hey on this date in this Year we're gonna see we're gonna we're Gonna see the three month invert the Tenure and they asked you do you think We're going to be in a recession when That occurs you're probably better off Answering no because again normally when We become when it becomes inverted You're not in a recession and it can Take quite some time for us to actually Get to the uninversion process to give You an example In 2000 uh the doc just before the.com Crash and in the summer you can see that We had inverted yield curve but it Didn't we didn't become uninverted right Until about what six months later or so It was longer during the financial Crisis we had an inversion back over Here in July 2006 the market kept Pushing higher for basically another Year or maybe slightly more maybe about 14 months before it actually topped out Now just because it had this rally right Here during the inversion process did Not mean that the market was immune to To what could theoretically occur after It right I mean and sort of zooming out

Here even though we became inverted here The market rallied for you know well Over a year and we still eventually took Out that entire rally it just took a Long time to do so right it took a long Time to do so and remember that the Markets will make fools of both sides Right in 2022 we made fine uh the market Sort of um made a joke of of the Bulls In 2023 so far it's more or less made a Joke of the Bears and and this is what The market does right it's what the Market does but you can see that even in This yield curve inversion even though We still slightly went higher eventually The market did did roll over and I think The bigger question is well how long Could this actually take I mean you know The process of the inversion of three Month and tenure Um we've seen it we've seen it last a Few months over here by the way if You're curious from inversion to Uninversion it was almost it was about a Year at least once it was sustained About a year and for this cycle We didn't get our inversion of the three Months of the tenure uh really until October of 2022. so you know we're only A few months away right July August September October just four months from Now it will have been an entire year Since we saw the three month and the 10 The and the 10-year experience that

Inversion that's nothing out of the Ordinary it's not right and history Shows us that the s p you know will Climb the wall of worry it can for some Time but you still have to deal with the Eventual resolution of the yield curve Right whether it happens three months From now six months from now nine months Or 12 months it's really hard to know it Really is and you know you're not going To find a more concrete answer for me Right it's hard to know exactly when the Uninversion process will take place if You're gonna go look at what the bond Market is predicting they're constantly Changing their minds only you know at The beginning of this year the market Was pricing in rate Cuts as early as now Now as early as June or July and now the The the bond market is basically saying There's not going to be any rate Cuts Until 2024. the fed you know at this Meeting last week Powell said they don't Envision rate Cuts until for two years So Again there does seem to be a fair uh You know a fairly strong disconnect Between what's going on uh over with the Fat over at the fat and what the what The bond market thinks and of course the S p just can as it has and continues to To sort of just climb the wall of worry Okay now at some point We're going to likely see this

Uninvert right and if you zoom in to the Uninversion process right it's like The.com crash the uninversion process The s p was already had already rolled Over during this uninversion process the S p did continue to climb up just a Little bit more and during this Uninversion process back over here you Can see that the s p climbed up just a Little bit more but in all three cases We did eventually go into a recession on The other side of it okay And you can look at the spread on the 10-year and the two-year as well and and That might be you know informative too You know we've we've been this one's Been inverted even longer right going All the way back to July of 2022. so the Two year and the 10-year have been Inverted for almost a year already and They had a brief inversion as early as April of 2022 but it wasn't sustained Until July is this out of the ordinary Not really right I mean over here we had An inversion we briefly put back above It but from this first inversion you Know like in late 2005 we didn't come Out of this until early 2007. So again some sometimes this you know The the inversion process the inversion The amount of time that we see the old Curve inverted can last over a year Right sometimes even longer a year and a Half or sometimes even longer than that

So we have to be aware of this of this Potential reality and even during the 1980s you know we were inverted for for Quite a long period of time And you know eventually eventually we Got you know we saw an uninversion and And of course during this process we Ultimately did go into a recession You Could argue that during periods of high Inflation we are more likely to go into A recession before it uninverts and the Reason why the reason for that could be Due to you know a more Um uh a more hawkish fat right more Resistant to wanting to cut rates Because of high inflation and so they Might just stay the course of it longer Than they otherwise would have so there Are of course periods where you can see A recession during an inversion but what You will often find is that the time at The time in which the the curve does Become inverted right when the two year Inverts the tenure you're often not Looking at a recession at that time it Doesn't mean that you can't go into one At some point during the inversion but Oftentimes when you're not experiencing High inflation you will see a recession Come after the uninversion and then Sometimes when you're experiencing High Inflation the recession can come still Why the still while the yield curve is In fact inverted but I thought it would

Be interesting To sort of plot out here how the s p has Performed uh after yield curve inversion Right doesn't that seem like a useful Exercise so just algorithmically if you Were to go back for several decades you Know going back to the early 1980s and Just sort of plot out what the s p does After an inverted yield curve of more Than like just like a day it has to be Inverted for a few days if it's just Like a single day we throw it out this Is what you ultimately get so this is The S P 500 Roi too low after yield Curve inversion and if we ignore the Current one this is what it normally Looks like right so normally you you can Get a rally after it but eventually we Do see it typically roll over this was The.com crash over here this was the Financial crisis this was 1989 you can See the 1989 rallied on up uh to a Pretty nice level uh you know over 1X Um or over over basically where it Become became inverted right so like it Didn't just go down the minute that the Old curve inverted it actually went up For a while and stayed as stayed above One for as long as you know about Two-thirds of a year or so before It Ultimately came back down now if you Overlay the current cycle you can see That we've outperformed even the most Optimistic case that we've had in the

Past which was I believe 1989. So if you were to throw on here let me Find the right one because there were Several several of them So 1989 and then I want to Overlay the Current one right so this is an example Where the market rallied and it still Eventually rolled over Um you know once once things got got bad Enough I do think that it's important to Consider just the longevity of of you Know of this process right like just how Long it can take and it can take a Really long time for this to play out Now arguably you could say well is this Time different normally going down that Path is a fairly dangerous path to go Down because normally it's not different Right sometimes the amount of time it Takes uh is different right normally That's different but the end result is Usually not different and so I guess the Question is is well how long can can This go on until it finally rolls over And history shows us that Um at this point You know we've outperformed at least Going back to the early 1980s we've Outperformed all of those now there are Some unprecedented events this business Cycle for instance the FED printing six Trillion dollars also do note that we Did have Um you know a fairly long downturn in

The S P 500 just before Um or a right or you know just before we We got into some of this conversion Inversion process but at the end of the Day you know we still have to eventually Come to terms with the uninversion Process and you know it's hard to say Exactly how high equities can rally Until that time I will be completely Honest and say that they've gone higher Than I thought they would okay Um they have I I didn't really think They would they would go this high but They have and and here we are uh so we Need to we need to be aware of of how Equity markets can in fact do this uh Just to give you kind of an example here I was looking at this earlier Um uh the Russell 2000 you know at least Last cycle we put in a low in 2018 and Then we rallied even through the yield Curve inversion and even after it it Inverted or after it uninverted and then It still ended up putting in a new low We actually saw something similar in 2014 we didn't have an inverted yield Curve but we put in a low in the in sort Of the midterm year we rallied and then Put in a lower low in the presidential Election year Um so it's interesting to see if Something like that would play out where It you know it rallies and then Eventually puts in a new low uh maybe

Maybe sometime early next year or or Later on this year but I did think that This was an interesting concept sort of Plot out the ROI uh too low after yield Curve inversion and do note that this 2022 one and 2023 one is assuming uh That the lowest still to come right I Mean all these other ones we have the Advantage of hindsight where we can look To see did the low come later or did it Not during this process we don't Actually know for instance if the s p Does eventually drop but it puts in say A higher low than the low would have Already happened if it puts in a lower Low then it makes sense to continue Plotting this but at this point right It's still too early on in the process To to fully know why we just simply Cannot know at this time And we can also plot this for you know Roi to low after say the the inversion Of of the two year and the ten year and See what that looks like and you know From this process what's going on right Now doesn't really look that out of the Ordinary uh with that said it still has Rallied longer at this point in time Than all these other Cycles going back To the late 1970s there was once one Cycle though that actually had a that Topped out just north of where it is Today although it topped out a lot Earlier right it still it still

Eventually topped out and I'm sure you Can guess which one that was it was of Course 2019 right so in 2019 if we take A a closer look at this you can see that It ultimately rallied Um a fairly significant amount after the Inversion of the two-year and the tenure And it convenient it continue to Rally Even after the old curve uninverted but Then at some point we got the pandemic And then and then sort of the bottom Fell out right so a lot of things to Consider here hopefully you guys enjoy The content if you do make sure you Subscribe to the channel give the video A thumbs up again you can check out the Sale on into the cryptoverse premium and And you can get access to charts like This so make sure you check out that Check that out links in the description Below I'll see you guys next time bye